...consists of two phases:
- Editing stage. At this stage the decision maker simplifies the problem for the purpose of evaluation and choice. It has 4 sub-stages: coding- based on gains and losses, combination- associated problems, probabilities and outcomes, segregation- separate risky components from non-risky ones, and cancellation- dismissing common values.
- Evaluation stage has two functions: value function- first gains have a really high value, but the subsequent gains which are also good have less and less value. For example a first drink- a bottle of cold water after half a day at the beach seems priceless, whereas the subsequent drinks are still good, but not the same value.The same works for losses, meaning that the first loss has the highest value- this reminds me of heart-break, the first is always the worst, the subsequent ones are always less and less painful. To compare losses and gains: losses are worse than the gains of the same value; weighting function- the likelihood of things occurring. Sensitivity to changes is probability. Small probabilities have an undue value. For example according to this, it is not very wise to play the national lottery and pay a pound for that, because the £1 ticket's value is actually much less than £1.
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